Key Facts
- Mattel’s current share price is in the low $19 range, but some models show that it is as much as 16% undervalued.
- Holiday toy sales are expected to be down this year, due to economic concerns and inflation.
- Mattel’s sales got a large boost from the success of the Barbie movie, and other toy-related movie tie-ins are on the horizon.
Now that Halloween has come and gone, it’s time for the Christmas season to start. Stores are already moving their bags of trick-or-treat candy and stuffed vampires to the clearance aisle to make room for candy canes and Santa decorations.
For toy companies, it’s the most wonderful time of the year, as parents begin buying the items on their children’s lists to Santa in order to give them the best holiday season possible. Mattel, one of the two biggest toy companies in the world, appears to be well-positioned to take advantage of the holiday sales season, which should be good news for investors in its stock. It’s not quite that simple, however.
After hitting a high of $22.64 in early September, Mattel finds itself in the low $19 range at the start of November. The top offshore sportsbooks are taking futures bets on whether the stock will reach $20.50 by the end of the year. The betting market seems to like their chances. The over currently has odds of -140 at BetOnline (Find out more with our BetOnline Review), while the odds of finishing under $20.50 are at +100.
In the Pink
Mattel reported good news for its third-quarter earnings, as they exceeded market expectations by a wide margin. That’s thanks in large part to the enormous success of this summer’s Barbie movie. Despite a writers and actors strike that kept the movie from getting the promotion blitz most summer blockbusters do, Barbie was still a runaway hit and gave Mattel an estimated $125 million sales boost.
The company believes, however, that most of those increased sales have already occurred. Some observers believe that may be an attempt to keep expectations low. Barbie merch is sure to be high on the wish lists of children this holiday season, and the expected arrival of the movie to online streaming services at some point in November should give sales another shot in the arm.
Not a One Trick Pony
While Barbie has helped turn around Mattel’s sales, there are plenty of other toy lines supporting the brand’s holiday toy sales. And the company has learned from the summer’s success, exploring movie tie-ins with many of them. Hot Wheels, Polly Pocket, Barney and Trolls are all in various stages of movie production.
Mattel’s holiday sales forecast expects Barbie and Hot Wheels to have increased sales over last holiday season, while Fisher Price, its line for preschoolers, is expected to be down from last year. Most observers believe the company is being too conservative with its sales estimates, again, in an effort to keep expectations low.
One Wall Street analyst’s model calculates that the stock is currently undervalued by as much as 16%. That would its actual value at close to its 52-week high.
Not All Good News
With all that encouraging news, why is the stock currently so low? And why did it drop by 8% after the favorable earnings report was released? The reason for Mattel’s pessimism is an expectation that holiday toy sales across the board will be down, due to ongoing concerns about the economy and inflation. Mattel forecasts virtually no growth in the toy industry’s holiday sales over last November and December.
“We are operating in a challenging macroeconomic environment with higher volatility that may impact consumer demand,” CFO Anthony DiSilvestro said after the third quarter earnings were released.
There have also been reports of significant stock sell-offs by company insiders over the last three months, a possible sign that trouble could be on the horizon.
The Pick
So, does Mattel’s share price jump by more than a dollar by the end of 2023? Or does Mattel’s gloomy forecast hold up over the holiday season?
It will probably depend on that unnaturally thin blonde lady with a preference for pink. While the Barbie movie has been available for purchase or rental online since September, it is expected to be released for free on Max at some point.
It wasn’t included on the list of expected November streaming releases on Max, but that doesn’t necessarily mean it won’t come out at some point during the month. Studio executives had said it would be available “in the fall”.
The best guess is that it will be a surprise release, just before Thanksgiving, giving the demand for Barbie toys a pre-Black Friday boost.
We believe in Christmas magic, and in the power of Barbie. Look for Mattel to top $20.5 at -140 at BetOnline.
